Forex, FX or currency trading as it is also known is the buying and selling of currencies.
If you have traveled, you have probably already made a foreign exchange trade when you bought the currency of the country that you were visiting.
For example, you may have sold Euros to buy Dollars for a trip to the USA.
The difference with the online Forex market is that you don’t purchase or sell actual physical currency.
The buyers and sellers in the Forex market, can be a bank, a business or an individual investor like yourself.
You buy or sell currencies which are traded in pairs with the goal of trying to profit from the appreciation or depreciation of one currency against the other.
When you decide to buy or sell, you are speculating on the future value of the currencies.
Example of Forex transaction
Take for example the Euro Dollar pair (EUR/USD).
You choose to buy the Euro and sell the Dollar.
Let’s assume that due to market fluctuation, the value of the euro increases against the Dollar.
You then decide to close your deal and sell the Euro.
The difference increasing the euro rate, means a profit for your deal.
This is the basic principle of online Forex trading and why investors trade.